When to be stubborn can cost hips, page-36

Hi Mighty - Your view on SGH seems to have become a bit more sanguine in the past couple of weeks. I agree with most of what you say.

I don't like to making this comment (because I have never been long or short in SGH - was intending to go long at under $1 - but have been scared off by Class Action issue), but after the Quindell accounts were restated it seemed to me that SGH had blown most or all of $1B.
As I understand it, the PSD business in its current form has never been cash flow positive or made a profit (based on restated accounts). Even if their restated accounting policy was a bit more favourable to accruing income, they would still have shown losses. On that basis SGH should not have paid any goodwill.

This will be a non-cash accounting write-off - and there should still be enough underlying EBIT to to have 200% coverage for the interest bill, even if SGS produces no positive contribution; and it's unlikely to be that bad from now on - SGS should be EBIT positive soon. So they should survive if there are no other big unknowns - though the banks won't be comfortable. (But why would they act - almost all the assets are intangible.)

The most important thing for SGH is for it to recognise its error and get on with making the best of a bad situation.
Mr G will have to go - to restore credibility with institutional investors. A good part of the board should also go.

If you are old enough to recall the 1990's, I think (if my memory is still working properly) Graham Hart bought a big chunk of Burns Philp for over $2 / share. He had ignored major issues such as a big litigation against BP. The price collapsed to about 20cents on bad news shortly after, and the media reported with much glee than he had blown the lot.

His reaction was to accept he made a bad decision and work like crazy to recover his investment.
He ended up selling a few years later for a big profit.
Lesson wasn't lost on me.